In this course you will build a practical framework to understand the critical linkages between organization design and the creation of economic value through execution. We will focus on four critical linkages:
1. How organizational growth and life cycle require design changes to improve execution
2. How managerial decision making can be improved through better organization design
3. How the design of human resource practices shape the culture of the organization
4. How innovation and change can be facilitated through organization design
These linkages are critical in assessing how managers make sure that the organizations they design can execute the strategies they have envisioned under changing environmental conditions.
Learners will be able to answer the following:
• What are the managerial implications of organizational growth and life cycle?
• How do you improve managerial decision making through organizational design?
• How do human resource management policies shape organizational culture?
• How do organizations plan for top management succession and change?
• How do you know that your organization design is not effective?
• How do you manage organizational change and innovation?
This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

MP

Fantastic Course. I felt the course covered vast amount of ideas and management concepts. I also liked the required readings. Totally enjoyed this course...

De la lección

Module 2: Managerial Decision Making and Organization Design

How can managers design organizations in order to make effective decisions? The answer to this question requires a clear understanding of cognitive limitations of managers and how managerial practices can be developed to overcome them.

Impartido por:

Huseyin Leblebici

Professor of Business Administration

Michael Bednar

Associate Professor

Transcripción

[SOUND] [SOUND] So in this segment, we're going to talk about the elements of managerial cognition and how these factors influence decision making processes. So think of it like this. Our objective is to make effective organizational decisions, that's the goal we want to accomplish, but we know there are cognitive elements or managers' cognitive structure that will impact whether we make effective decisions or not. So what are these cognitive elements? For instance, one is what we call fundamental attribution error. That we assign responsibility to the individual rather than to the situation. Another possibility is availability heuristics. If certain information is available to us then that information affects our decisions much more directly. We don't search for additional information. There is the element of what we call escalation of commitment. We stick with some decisions and we are unwilling to going to change our minds. We have what we call representativeness heuristics, certain information is presented to us in such a way that we take them in face value. And finally, we have anchoring and confirmation biases. So given that we have all these commission related issues. And we want to make an effective decision in our organizations, what should we do? And that's why we need to develop organizational structures and processes so that these factors will be reduced in terms of their impact in making the decision. So that's our objective. Here's an in video question. Do you agree with these findings? In their classic book, Tom Peters and Waterman in 1982 wrote a book called In Search of Excellence: Lessons from America's Best Run Companies. So how did they write this book? They selected 43 most successful companies over a 20-year period. And they looked at every aspect of their performance, especially financial measures. They measured compound asset growth, they look at compound equity growth, they look at return on capital, return on equity, return on sales, and they said, these 43 companies had been the most successful ones in the last 20 years and let's look at them and try to figure out what makes them successful. And at the end, authors identified these company's secrets of success in the following fashion. They said these firms have a bias for action. They're staying close to their customers. They foster autonomy and entrepreneurship among there employees, gain productivity through utilizing their people effectively. They have hands on value driven management committed to sticking to their knittings. They do what they know how to do best. And they have a simple form, and lean staff in terms of organization. These are some of the most critical things they found. And this book, of course, since 1982, still one of the best sellers of what makes organizations to be successful. So, do you agree with these arguments? Do you think that this is the way we should learn about how to make our organization more successful at the end? Now, we can identify, actually, three different fallacies in the process they actually followed. And my question is, which of these fallacies is the correct fallacy to understand why maybe there is some problem with their research? One possible fallacy, is the illusion of correlation, and causality. Just because we saw certain kind of correlations, does that mean that's what the cause is? So when we look at, the relationship between employees loyalty, and satisfaction, and the performance of our organization. Could we say that because we have highly satisfied employees, and that must make them our organization successful? Or because we have successful organization and our employees are happy to be part of that successful firm? For the causality can go the other way. The other alternative explanation is what we call the halo effect. The halo effect says the tendency to look at a company's overall performance and make attributions about its culture, its management, about its leadership, and about its practices. In other words, because the firm looks successful we say, well, the management must be good, the employees must be great, and they have great practices, even though the success could be completely related with the economic circumstances of the times. And finally, the illusion of connecting the winning dots. If you pick a number of successful companies and search to what they have in common, we'll never isolate the reasons for their success because we have no way of comparing than with less successful companies. That is one of the reasons why you learn in your statistics classes that you have to have randomly select the subjects, or the companies, or the data. If you don't do that, then you're going to fall into this illusion. So which one of these actually do you think explain the potential fallacy in that book? This actually brings us to the subject of fundamental attribution error. Fundamental attribution error is one of the laws of psychology. That is to me as close as we can get to laws of physics. This is the tendency to explain someone else's behavior. Could be an organization or an individual. In terms of internal rather than situational causes. We explain why Apple is so successful because we say they had a great leader or they still have a great leader. Because we attribute the success to something internal rather than the situation. So, why does this error occur? Any explanation is very straightforward. Most salient thing in social settings is the behavior whether this is the behavior of the organization, or outcomes of an organization, or behavior of an individual. And we basically attribute what is going on to the individual, rather than to the situation. The focus is also going to be on behavioral, and that leads the observer to over attribute behavior to dispositional factors rather than situational factors. As we saw in the case of Peters and Waterman's book, we see this happening all the time around us. So, here is another in video question for you. Which one would you choose, as the CEO of a military aircraft firm, you have invested $100 million into a research project to build a stealth bomber. Your objective is to build the stealth aircraft which cannot be detected by radar before any other aircraft company will enter into the market. When your project is about 90% completed, another aircraft firm announces that they have completed their plane and is ready to market it. The other firm also confirms that their plane not only is a stealth plane, but it's much faster and far more fuel efficient than the plane your company is building. The question I want you to answer is, should you invest that additional last 10% of your research project to finish your radar evading plane? Yes or no? Most people answer the questions as, yes, I'm going to put that 10% also into my project. And this is what we call escalation of commitment. You already have made a commitment to build a plane. You are 90% already in. You invested all that money. And you always start thinking, well, maybe we will be still successful in the market place. We will look for positive information. So, this tendency to increase our commitment to our initial decision in spite of getting negative feedback this is called escalation of commitment. Managers make these decisions all the time. Instead of saying maybe this is the time to take that 10% which is about $10 million and start a new project, we invest in it. Then the question is why do we do this? Why does escalation occur? There are perceptual biases. We get more attention or we pay more attention to confirming information rather than disconfirming information. We have judgmental biases because we are risk averse and that is what we want to avoid, and more importantly sometimes it is the impression management. We don't admit to ourselves that we made a mistake in our decisions. We want to be seen as inconsistent by changing our minds, the flip flopping we will be called as managers. I remember, long time ago, I had a PhD student who was a very smart, idealistic, person. And, he was selected to enter in our PhD program, and we spent a whole year together. He worked on different projects. He learned all the material, but at the end of the year, the evaluation of the faculty was that even though he's very smart, he's willing to learn, he's much more of a business person rather than a researcher who will focus on one single project and work on it constantly. That's what we are looking for in our PhD students. We told them that maybe he should do something else. Maybe start an entrepreneurial firm. But he said look, I spent a whole year learning all this material, and I need to be given another chance. So we gave him another chance. At the end of second year, the evaluation was exactly the same. And we said, maybe this is not the right thing for you to do, but he said, what I spent two years I invested, there is all this cost of my time, energy, and all those things that I have done for this program I need to continue. And we said okay again. At the end of the third year, the evaluation was the same, and at the end, he decided that maybe this is not the program for him. But he lost two additional years that he could have done something else. But this is what again we call escalation of commitment and this is also related what you learned if you have taken a finance course called sunk costs. Just because he once spent a extra years or spent $90 million, these are sunk cost, decisions must be about the future, rather than about the past. But that's why we have this perceptual biases, judgmental biases, and impression management, and I know from my student that he really didn't want to be seen that he admits failure. In our next video, we will discuss another critical class of heuristics that may limit our abilities to make effective decisions. These are called availability and representativeness. [SOUND]